After strong 2011 distributors face challenging SBQ market

An overall downward trend in demand for specialty bar products has greatly changed the mood of steel distributors when it comes to inventory control and expectations of mill price changes. Players in the special bar quality (SBQ) market also are keeping their eyes on imported products, and many are divided over what impact imports have had on the domestic market.

Although domestic SBQ demand was remarkably strong in 2011 and pushed mill lead times and prices up dramatically, it has slowly melted away this year, with most cold finishers and end-users saying they hope the midyear point marked the bottom of the market.

Announced price increases for SBQ products appeared to have stuck in large part in September, although buyer sources questioned how long prices will hold up in the second half of the year, given increased supply and lackluster demand.

Demand moving into year-end looks weak. And customers think scrap will go down so theyll wait for the price to go down, especially if they dont need material now, said one bar distributor, who cited lead times of six to eight weeks.

Other market sources, some of whom said demand had declined markedly since July, said lead times for SBQ were as low as four to six weeks, a far cry from the 13 months quoted during the first half of 2011.

July was poor, said a source at a distributor in the upper Great Lakes region. Volume was down and price was down significantly, related to the reduction in scrap surcharges. August (did) not really change much, but for the most part the discounting stopped.

Most buyer sources contacted by AMM said the September raw materials surcharge increase for SBQ had been accepted, at least in part, by the market. But some sources also predicted that prices would decline in the second half on lower scrap tags and slowing business activity. Sectors that had shown strengthsuch as automotive, energy, and heavy truck and equipmentwere showing signs of having peaked, some said.

One distributor, for example, questioned how long buyers might be willing to pay most or all of the scrap increases, especially given what he said was an SBQ market characterized by too much inventory, allowing buyers to shop around for deals. If order books were stronger, people would not take that risk, he said. But there is a lot of uncertainty in the market and people are very apprehensive about placing orders.

Chief among the uncertainties facing the U.S. market is the upcoming presidential election, market sources said. But other worries, including the European economic crisis and a slowdown in China, also are dragging down the market, they said.

A bar service center source said weak markets in Europe and the situation in China were resulting in increased imports into Houston ports, sometimes unsold and available at low prices. But he said U.S. companies also are to blame for the current soft market, with discounts perhaps more readily available than they had been in the past.

Spot market pricing for SBQ products so far this year has followed the trajectory set by the AMM consumer buying price for shredded automotive scrap and No. 1 busheling, used as the basis for certain mills surcharges. The SBQ products tracked by AMM declined by $45 per ton in August, based on how far mills raw material surcharges had fallen. Charlotte, N.C.-based steelmaker Nucor Corp. said it would lower its raw material surcharge on SBQ to $217 per ton ($10.85 per hundredweight), a decrease of $33 per ton ($1.65 per cwt), effective with shipments Oct. 1, according to a Sept. 12 letter. Some sources said the decrease was less than they had expected, and they had not seen any immediate changes in the market as a result of the move.

But another service center source said his company had seen a pickup in business activity after a sharp slowdown in July. The turnaround had not been as robust as his firm might like, he said, and it was not clear what was driving it.

He agreed that the current SBQ market was plagued by too much inventory and not enough demand, but he reasoned that the situation could change quickly if the market were to regain a sense of direction, something he said might be possible once the presidential election is over. Nothing is really happening until after the elections, he said. But at some point, people have to jump back in the market and buy.

Most people have talked about it: 2012 just didnt happen, a national bar sales executive said. There were great expectations. Now there is a lot of apprehension. A lot of markets are slow, as are a lot of customers. Mining, automotive, heavy equipment is said to be goodbut really, where the hell is it? There is quoting activity, but orders are still slower than earlier in the year, and the volume of opportunity is lower.

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